“BUY” This Mid Cap Pharma Stock With A Target Price of Rs. 870: Motilal Oswal

Motilal Oswal, a brokerage company, has set a buy recommendation on Eris Lifesciences' stock. The brokerage has set a target price of Rs. 870 for the stock and expects it to reach that level in a 12-month time frame from current levels. The brokerage expects the stock to surge +27% from its current levels in a target period of 1 year.

The brokerage’s take on Eris Lifesciences Ltd.

Motilal Oswal in its research report has said that "ERIS is a dominant player in AD therapy, with a market share of 5.6% (+160bp over FY16-21) in the covered market. ERIS' sales recorded a 21% CAGR over FY17-21 to attain a revenue of INR4.5b (FY21; +19% YoY in 1HFY22). Within the industry level framework of increasing patient pool and evolving medication to lower hypoglycemia risk/weight management, ERIS has built an extensive range of products in Oral anti-diabetics (OAD). Besides conventional OADs, it has also been launching the latest molecules (DPP4/SGLT2 inhibitors) and gaining market shares in these products. Underpinned by its strong marketing franchise, ERIS improved its sales: a) of Zomelis by 6x (INR60m per month) in two years since its acquisition, and b) of Gluxit by 4x (INR30m per month) in one year since its launch."

According to the brokerage "We believe that there is strong visibility for new product offerings as at least one product is expected to go off-patent over the next ten years in OAD therapy. Additionally, a foray into Insulin and its analogs through supply tie-up with MJ Biopharm would bolster ERIS' portfolio in AD. Further, ERIS continues to provide medical equipment to track critical parameters for better diabetes management. Thus, its product and service offerings play a vital role in improving the prescription pace of its products. We project a 19% sales CAGR for ERIS in this category over FY21-24, given the under-penetration of newer molecules (DPP4/SGLT2 inhibitors, Insulin analogs, etc.), its established brand franchise, and better connect with patients through improved services."

Motilal Oswal has noted that "ERIS' sales recorded 14% CAGR over FY17-21 in the Cardiac Care category to reach INR3.7b in FY21 (+15% YoY in 1HFY22). Within this segment, ERIS has focused on medicines related to hypertension and lipid-lowering subgroups that formed ~83% of current medication at the industry level. The demand outlook for cardiovascular diseases remains strong (~37m cases in CY20 expected to reach 88m by CY50). While ERIS has built key brands such as Eritel (Telmisartan combination), Olmin (Olmesartan combination), Atorsave (Atorvastatin), LN Bloc (Cilnidipine), and Crevast (Rosuvastatin combination) in this segment, it intends to increase the coverage among super-specialty and high-end physical consultants by 50% over the next two years. This would not only comprise propagating own products but also conducting India-centric studies to enable scientific evidence and thus better diagnosis. We expect a 13% CAGR for ERIS in this category over FY21-24 to reach INR5.3b of revenue led by: increased MR-doctor connect, technically superior products in hypertension/lipid lowering subgroups and new launches (such as Rivalto)."

The brokerage has further added that "ERIS recorded a 27% CAGR over FY17-21 to reach INR2.8b of revenue in FY21 (+35% YoY in 1HFY22). The growth was driven by active engagements with cardiologists, diabetologists, and endocrinologists. The company has built the VMN portfolio as a natural extension of the Cardiac Care and AD portfolios. We project a 16% sales CAGR for ERIS in this category over FY21-24 to reach INR4.5b led by anticipated market share gains in existing products (through enhanced co-prescriptions), supported by new launches (such as ZAC D) and rising demand for immunity boosters. To complement its product offerings, ERIS has expanded its field force by 600 MRs to 2,182 (FY21) over the past five years. The MR productivity, at INR4.8L per MR per month, is in line with the industry average and has scope for improvement. The company aims to expand its coverage of super-specialists and consulting physicians; thus, we expect a calibrated increase in MRs (likely addition of 200 MRs in 4QFY22/1QFY23) over the next 2-3 years."

Buy Eris Lifesciences Ltd. Says Motilal Oswal

According to the brokerage "ERIS has delivered a 13% revenue CAGR, with a steady 35% EBITDA margin over FY17-21. Notably, the EBITDA margin improved to 39% in 2QFY22. During FY18-20, ERIS had put considerable efforts into turning around the portfolio acquired from Strides. However, despite this exercise, it was able to maintain its profitability at pre-acquisition levels only. Overall, we project a 17% earnings CAGR, led by a 19%/13%/16.5% sales CAGR in AD/Cardiac Care/VMN segments, respectively, over FY21-24 along with a 130bp margin expansion during the period. The Indian Formulation and the Chronic Therapy businesses are expected to register a revenue CAGR of 11% and 13-14%, respectively, led by increasing population in the 15-64 and 60+ age groups, rising per capita incomes, and changing lifestyles."

Motilal Oswal has claimed in its research report that "Interestingly, transformation is underway in the India Formulation industry, driven by: a) brand building through the MR-doctor virtual connect, b) efficiency improvement in supply chain management, utilizing the e-commerce route, and c) improved services to patients in teleconsultation, home services for diagnostic testing, the provision of medicines and d) focused marketing spends and cost rationalization using data from e-pharmacies. Underpinned by the Chronic-heavy portfolio, the MR force driving brand play, brand turnaround capabilities, increased in-house manufacturing, superior (35%) EBITDA margins, and better-than-industry growth prospects, we ascribe 22x 12M forward earnings to arrive at our TP of INR870 for ERIS. This implies a 27% upside from current levels. Initiate coverage with a BUY rating."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.